I finish doing the problem 1 and 2, who can help me with the problem 3? Home is

Question

I finish doing the problem 1 and 2, who can help me with the problem 3?

Home is a large country. The demand for a good at home is QD = 14 - P and the supply for the same good is Qs = P - 4. The Foreign export supply function is QXS* = 3/2 P* - 3. Calculate Home consumer, producer and total surplus in the absence of trade. Determine Home's import demand function. Determine the price of the good when Home and Foreign engage in free-trade. How much of the good docs the home country import? Determine Home's consumer, producer and total surplus under free trade. If the Home government imposes an import tariff in the amount of t = $2, find the new levels of consumer, producer, government and total surplus. Docs the import tariff t = $2 increase Home's welfare? Using the same market information from question #1, suppose that instead of a tariff, Home applies an import quota limiting the amount that can be imported into the country to 2 units. Determine the net welfare effect of the import quota on the Home economy if the quota licenses are allocated to local importers. Calculate the net welfare effect of the import quota on home welfare if the quota rents are earned by Foreign exporters. How do your answers in (a) and (b) compare with part (e) of question #1? Using the same market information from question #1, suppose that instead of an import tariff by the Home country, Foreign provides an export subsidy of s* = $2. Determine the effect of foreign's export subsidy on the net welfare in the Home economy. Try to show some of the welfare measures (distortionary losses or gains, terms of trade losses or gains) in a diagram of the Home import demand function and the foreign export supply function.

Explanation / Answer

A common element to both the production subsidy and export subsidy scenario when a subsidising country is large is a reduction in the world price. This will have negative and positive consequences for a subsidising country%u2019s trading partners. Producers of competing products will have to compete against the subsidised exporters at the lower price, whereas consumers of the cheaper imports will benefit. Countries that are net importers of the subsidised product, therefore, could gain overall from subsidies.
The analysis above deals with subsidies that are provided in relation to some economic activity or variable like production or export levels. Governments also frequently provide subsidies to finance wholly or partially the acquisition of fixed assets such as technology, plant, and equipment. Such subsidies may be paid only once or a limited number of times and are often referred to as non-recurring subsidies. Non-recurring subsidies can have effects on competition that go beyond the period in which the subsidy is actually provided. They tend to have the effect of increasing investment by some firms in the relevant market. As a consequence, more firms will be active in the industry or existing firms will produce at greater scale. This may have an impact on
the conditions of competition in world markets. The duration of such effects on international competition depends, among other things, on the depreciation rate of the fixed asset and the evolution of demand in the years following the investment, as discussed in Grossman and Mavroidis (2003). Non-recurring subsidies play a role in the discussion below on government intervention in industries characterized by economies of scale.

While producers only care about their own profits, what is good for the society depends on both producer profits and consumer welfare.
Only a part of consumer well-being is reflected in what consumers actually pay for goods in the market. If a government has reasons to believe that consumer welfare which is not reflected in market prices exceeds the losses producers would suffer without a subsidy, the government may want to consider subsidizing the initial investment, thus encouraging producers to supply the relevant good. So far this is a static story that takes place in a closed economy. It becomes more interesting from the point of view of trade when these assumptions are changed. This will shall do below in relation to learning-by-doing and strategic trade policy.

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